Martin here. Welcome to another edition of Founders’ Hustle!
I produce content about the “hustle” of entrepreneurship and building startups.
Today I’m sharing my insight on why new B2B startups should charge their first customers.
“Too much knowledge” can make you negotiate against yourself. 🤯
“Free trial” programs are practically infeasible to execute. 📉
“Free” sends the wrong signal and attracts less qualified customers. ⚠️
A fairly common mistake first-time B2B founders make is offering their newly built product or service for free as a mechanism to onboard a first set of customers.
There are exceptions, but, generally speaking, this is a bad idea.
I know why this approach comes to mind. I’ve been there myself and faced the same internal conflict.
Since your reading this, I’m going to assume you've had the same thoughts.
When you’re starting out as a B2B founder you can psychologically undermine your own position. 🤕
The companies you want to pitch are successful, professional, and polished.
Meanwhile, you’re a “chaotic” and scrappy team of 1–4, maybe working part-time outside of your “day jobs”.
You review their existing suppliers, some of which might be direct or indirect competitors, and start to draw comparisons with your startup.
Your target customers are used to working with billion-dollar corporations, unicorn startups, and companies with long-running pedigrees in their domains of expertise.
It feels like you have to match that in order to be taken seriously.
There’s a ton of anxiety around meeting their perceivably high expectations.
Particularly when the “flaws” in your own operation are so fundamental and “obviously” perceptible. A “1,000 things” could go wrong.
As I wrote previously:
You see all the bugs, the unfinished functionality, the grand product roadmap vision that isn’t anywhere near realized yet.
All of these thoughts are working against you. You’re essentially negotiating against yourself. 🤦
This is why you’ve entertained the idea of offering your product for free. You’ve negotiated yourself down to zero. This is not a good way to arrive at a price point.
It can feel natural to make your product free in return for your first customer “taking a bet” on you. If it goes wrong, the thinking goes, the customer is not “out of pocket”.
Similarly, sometimes it’s just a thought process that goes along the lines of:
“We’ll start charging when we have XYZ feature”.
This approach is mistakenly supported, argumentatively, by the high prevalence of B2B companies that offer “free trials”.
They’re in a totally different set of circumstances which aren’t relevant here — product-market-fit, well-capitalized, sophisticated sales funnel, optimized pricing and upselling mechanics, etc. The value perception and evaluation processes are entirely different.
This is hard to replicate at the genesis of a startup. You don’t have an existing model to base a free trial pricing structure on. Pinning it to a specific date or feature addition is difficult because these will likely need to change based upon customer feedback and how your product performs “in the wild”.
Likely, your objective at this point is to get feedback, data, and insights and navigate to product-market fit. 👶←→🍦
This creates another “launchpad” to flawed thinking:
“It’s OK to offer our product for free because we’ll get the data we need to find product-market fit”.
This logic implies your target customer is “doing you a favor”. Just because your product is free, doesn’t mean it has value or is useful. The fact it’s free is an indication it’s neither. That’s what you are communicating.
If you’re solving a material pain point at an economic price point you’ll sign them.
Your product doesn’t need to come with all “the bells and whistles”, either.
Starting off with a basic version that solves one problem materially, not exhaustively, is enough. ✅
An absolutely vital objective you want to achieve from the get-go is to establish whether or not companies will actually pay you for the product you intend to provide to them before actually building it.
Pitch your target customers and take paid orders. Your pricing model and payment terms don’t need to be perfect at this point. The fact they are willing to pay in itself is a great sign.
You also don’t need to give a real product walkthrough or provide a demo account in order to “close customers”.
Use assets that can be made inexpensively and quickly to convey your proposition — decks, mock ups, a “Mechanical Turk” (an experience that looks as though it works on the surface, but the underlying mechanics are not there).
It works, I’ve done it. They’ll be prepared to wait until it’s ready. You can keep them engaged in the meantime by updating them on progress, and, potentially providing pre-release demos.
By contrast, if you offer your product for free, it’s easy for companies to say “yes” and not follow through.
In fact, many probably will since it’s more comfortable for the person you’re speaking with to agree than say “no” and hurt your feelings. Gives a false impression.
After months of work, when you hand over your product to such prospects, most will either ghost you, permanently delay, or “implement without conviction” (install your product but not really use it). 👻
Those that do you use your product will have a reduced likelihood of converting to a paying customer. It’s a “nice to have” as opposed to “need to have” situation. It becomes easy to delay or put off their purchasing decision.
Plus, buyer psychology also comes into play. If they’ve been using your product for free, you’ve established a precedent. They will perceive it’s inexpensive for you to provide it to them. Like a low-cost utility.
It can be tricky to reverse this perception and even harder to position your offering at a premium price later.
Charging customers is the best filter to establish genuine interest in your product. Companies that are willing to pay for your “MVP” are the most enthusiastic about your mission.
They’ll contribute additional “priceless” value to your startup by helping you develop your product roadmap. 🧭
As I wrote before:
Prospects that are willing to pay want the solution you’re providing the most. They’re more likely to become heavy, longterm customers, and provide amazing feedback.
Until next time!
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